The Bank of Canada (BoC) have aggressively cut its overnight rate to .25% aimed at cushioning the economic shocks from COVID-19 along with a sharp drop in oil prices.

With interest rate dropping, homeowners may be encouraged to refinance for the following reason:

  1. Consolidate their debt by paying down high interest credit cards and/or loans. This will improve their monthly cashflow
  2. Interest rates could have dropped to the point that refinancing the home is lower than the borrowing costs
  3. Offensive strategy — not defensive, that is, ensuring that funds are available for undervalued stocks or investment properties.

“Refinancing is particularly more appealing for those that are renewing their mortgage” stated Ming Wong, COO for pololoans. “There is no penalty to consider at renewal. For those who are considering breaking their mortgage, we will consider the pre-payment penalty cost against the savings in refinancing your mortgage”.

Here are the general guidelines regarding refinancing a property:

  1. Maximum mortgage amount is 80% of the current appraised value of the home. It may vary with rental and/or rural properties
  2. If the property value is greater than 1M, a sliding scale will apply
  3. A secured line of credit bundle can be authorized to no more than 65% of the appraised property, the remaining 15% can be setup as a standard mortgage for a total of 80% loan to value.
  4. Some lenders will charge 5 to 10bps higher on a refinance mortgage.

Joe Digiambattista of pololoans recommends that you maximize your borrowing capacity with a secured line of credit, especially during this environment. “In addition to the standard secured line of credit at prime + .5%, we can also approve you for a secured line of credit behind your mortgage. These rates range from 7.99% to 9.99%. You are only charge interest when you use the line”, he said.

Due to pandemic, the lenders guidelines and process have been changed to meet the new realities:

  1. Borrowers must still be employed and there is little concern about layoffs with his/her company
  2. Additional financing require must make sense. Lender may require additional documentation for home renovation or starting a new business / venture
  3. Income verification must be submitted up-front, including most recent paystub and a recent letter of employment
  4. Additional information will be required for those that are business for self. The lender must access the impact of the pandemic based on the type of industry the company supports.
  5. Approval turn around will be 30 plus days
  6. Appraisal will take longer to complete because homeowners are required to take pictures of the interior of the house
  7. E-signature will generally be required for all documents